Trouble with Banks Accepting a Power of Attorney - Florida

As I've written in my last two posts, more and more Banks have been routinely rejecting Power of Attorney forms drafted by attorneys in New Jersey.  Obviously this irks me enough to write about it in three consecutive posts.

Apparently, this practice is not as common in Florida, and banks do so at their own peril after a Florida Court of Appeals awarded attorney fees against an insurance company for refusing to accept a person's power of attorney in Albelo v. Southern Oak Insurance Co.  This is because under Florida Statute 709.2120, no third party can unreasonably reject a valid power of attorney.

For a nice summary of the topic, please see David M. Goldman, Esq.'s post in his Florida Estate Planning Lawyer Blog.

Banks Required to Accept a Power of Attorney Under NJ Statutory Law

Yesterday I wrote a post about how banks are routinely refusing to accept powers of attorney.  I thought this statute may be helpful to people who may need to argue with the banks (at least in NJ anyway):

N.J.S.A 46:2B-13.    Banking institutions to accept power of attorney      4.   With respect to banking transactions, banking institutions shall accept and rely on a power of attorney which conforms to this act and shall permit the agent to act and exercise the authority set forth in this act, provided that: 

   a.   The banking institution shall refuse to rely on or act pursuant to a power of attorney if (1) the signature of the principal is not genuine, or (2) the employee of the banking institution who receives, or is required to act on, the power of attorney has received actual notice of the death of the principal, of the revocation of the power of attorney or of the disability of the principal at the time of the execution of the power of attorney; 

   b.   The banking institution is not obligated to rely on or act pursuant to the power of attorney if it believes in good faith that the power of attorney does not appear to be genuine, that the principal is dead, that the power of attorney has been revoked or that the principal was under a disability at the time of the execution of the power of attorney.  The banking institution shall have a reasonable time under the circumstances within which to decide whether it will rely on or act pursuant to a power of attorney presented to it, but it may refuse to act or rely upon a power of attorney first presented to it more than 10 years after its date or on which it has not acted for a 10-year period unless the agent is either the spouse, parent or a descendant of a parent of the principal; 

   c.   If the power of attorney provides that it "shall become effective upon the disability of the principal" or similar words, the banking institution is not obligated to rely on or act pursuant to the power of attorney unless the banking institution is provided by the agent with proof to its satisfaction that the principal is then under a disability as provided in the power of attorney; 

   d.   If the agent seeks to withdraw or pay funds from an account of the principal, the agent shall provide evidence satisfactory to the banking institution of his identity and shall execute a signature card in a form as required by the banking institution; 

   e.   If the banking institution refuses to rely on or act pursuant to a power of attorney and the agent or principal has, in writing, provided the banking institution with an address of the agent, the institution shall notify the agent by a writing addressed to the address provided to it that the power of attorney has been rejected and the reason for the rejection; 

   f.   The banking institution has viewed a form of power of attorney which contains an actual original signature of the principal. Alternatively, if the banking institution receives an affidavit of the agent that such an original is not available to be presented, the banking institution may accept a photocopy of the power of attorney certified to be a true copy of the original by either (1) another banking institution or (2) the county recording office of the county in which the original was recorded. 

   L.1991,c.95,s.4; amended 1994,c.142,s.2.   46:2B-14.    Banking institutions not liable for action in reliance on power of attorney       No banking institution acting in reliance on a power of attorney as set forth in this act, nor any person acting on behalf of such an institution, shall be held liable for injury for any act or omission if it is performed in good faith and within the scope of the institution's or person's duties, unless the act or omission constitutes a crime, actual fraud, actual malice or willful misconduct.  

Growing Problem of Banks refusing to Honor a Financial Power of Attorney

Please be advised that more and more banks are refusing to accept any financial power of attorney other than their own form.  This may not be a huge problem if you are still competent, but if you become incapacitated later and have not sign the "Bank approved form", it could make life very difficult for your agent to act on your behalf.

I recently ran in to this problem with a client and it took a long time to straighten out.  Also, I just came across this excellent article in the New York Times written by Paula Span on the topic. I strongly suggest reading it as it details how widespread the problem is and offers some helpful solutions.

I do note that, to date, the banks have tended to back down if you approach the managers and legal department.   Unfortunately, hiring an attorney to fight that fight may cost the client a fair amount in legal fees.  Another approach, if you are politically connected, is to get your ombudsman involved.

As a result of these news, I tend to be advocating Revocable Living Trusts even more.  Unfortunately, that won't help if the client has an IRA or other retirement account.  I'm interested in hearing how others are dealing with this problem.

Estate Planning and Divorce in New Jersey

Men and women who are contemplating a separation or divorce have unique needs. Some divorces are very friendly and you can still count on your soon-to-be ex, but in most other situations, you may find that you rethink many aspects of your life, including where you wish your assets to go should something happen and who you can trust. 

Accordingly, it is essential to update your estate planning documents.  This should be done:

1. To ensure that someone trust-worthy will be able to make medical and financial decisions for you in the event that you are incapacitated; 
2. To prevent your soon-to-be-former spouse from receiving all of your assets; and 
3. To give you as much control as legally possible over how your children or any embryos created during infertility treatments will be taken care of and provided for in the event that you pass away.

The less trust-worthy your spouse is, the more important it will be that you take action to protect yourself (and your children). To help you get safely through this time of transition, you should consider creating:   

1. A Will. If you are married and die without a Will, your spouse would generally be entitled to 100% of your estate. However, if even if you are still married you are generally permitted to leave your assets to whomever you wish if you write a Will.  Most people think that your spouse may still be entitled to a third of your estate (the “elective share” under N.J.S.A. 3B:8-1), but the statute contains many exceptions which typically allow you to completely cut out your soon to be ex. This is because the elective share statute requires that at the time of death the decedent and the surviving spouse must not have been living separate and apart in different habitations, they must still been cohabiting as spouses and not under circumstances which would have given rise to a cause of action for divorce or nullity of marriage to a decedent prior to the decedent's death.
2. An Advance Directive for Health Care/Health Care Power of Attorney. This will allow you to control who will make medical decisions for you if you are unable to make them for yourself, helping to ensure that your wishes will be achieved. For example: would you want the person you are divorcing to be able to make decisions about your medical care and whether or not to remove life support, or would you want this decision to be made by a relative or close friend?
3. A Financial Power of Attorney. This will allow your agent to use your money to pay for your medical bills, attorney fees connected to your divorce, and potentially take action to do anything else needed for your benefit. Depending on how this document is structured, it can take effect as soon as you sign it, so that a trusted friend, relative, or financial services professional can help you through this stressful period. The divorce process is a stressful one and often brings with it a slew of new responsibilities and challenges. This document can allow you to outsource emotionally-difficult tasks such as selling your marital home and managing the transition of your assets from joint to separate accounts while you focus on making the big decisions, attending court, and adjust to life as a single parent. This document can also prove invaluable if symptoms of anxiety and depression (which can often be triggered by major life events) set in and you become unable to manage your affairs. Being proactive and creating a plan for dealing with your responsibilities can help make your daily life easier and more manageable during this difficult time. 

Speaking with an estate planning attorney can help you better understand your options and create the best possible plan when preparing for challenging circumstances.  

Written by: Jessica J. Sauer, Esq. & Kevin A. Pollock, Esq., LL.M. 

Reasons to Value a Trust

Recently I gave a lecture on the valuation of trusts.  While I am not an accountant nor am I a valuation expert, I live and breathe trusts... and frequently the question comes up, what is value of a particular beneficiary's interest in a trust.

Keep in mind, just because a trust is worth $1M, it does not mean that the beneficiary's interest is worth $1M if they have limited rights to invade the trust or control it.  Here's are a few reasons to value a trust:

1. When a person dies, that person may have a beneficial interest in a trust.  Depending upon the type of interest a person has, it may or may not be includible in his/her taxable estate.  If the interest is includible in the deceased beneficiary's taxable estate, then the executor of the deceased beneficiary must report it on federal and state estate tax returns. 
2. Similar to the above, but slightly different, when a person dies, he or she may leave a beneficial interest in a trust to another person.  Particularly in New Jersey and Pennsylvania, you see this come up a lot when a person leaves money to a class A beneficiary in trust (such as a spouse), and then the remainder interest to an non class A beneficiary (such as a nephew or niece).  This triggers something known as the Compromise tax.
3. Financial Aid - Some colleges and schools will look at the trust terms, others won't.  Each school is different regarding the questions they ask on their forms.
4. Divorce.  Depending upon the state, a person's interest may be subject to equitable distribution, alimony and especially child support.  

• New Jersey tends to be fairly friendly to a trust beneficiary.  See Tannen vs. Tannen, where the Appellate Court ruled that a beneficiary's income interest should not be imputed for purposes of alimony.  The general rule was already that such an interest was not subject to equitable distribution.  (NOTE:  This case law is likely to be challenged in light of the fact that NJ recently enacted the Uniform Trust Act. 
• Pennsylvania is far less friendly to trust beneficiaries.  The general rule in Pennsylvania is that marital property does not include trust property acquired by gift, bequest, devise or descent prior to or during the marriage, but it does include the increase in value of such property. See 23 Pa. Cons. Stat. 3501(a.1)   
• As far as I am aware, both Florida and New York follow the NJ rule and generally considers trust property as separate property, not subject to equitable distribution.  
• Massachusetts recently came down with a terrible case:  See Pfannenstiehl.   (Note: I'm not licensed in MA)

Regardless of the reason why you need to value a trust, the first step in determining the value is to figure out what type of interest that person has.  Usually a beneficiary's interest includes one or more of the following:

• An income stream
• The right to receive income or principal for health, education, maintenance and support
• An annuity stream (such as $2000/month)
• Principal distributions once the beneficiary reaches a certain age
• The right to take out $5000 or 5% per year
• A discretionary interest

Once you have figured out a person's interest in a trust, the next step usually involves hiring a certified appraiser to figure out the value of a person's interest. A trust attorney can assist the appraiser by advising them on the nuances of the trust and not-so-obvious options that a person may have in invading a trust.  

If you are the beneficiary of a large trust, I would recommend that you have the trust reviewed to see if you should disclaim and renounce certain powers to minimize taxes upon your death.